Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax
This answer was rated:

My wife and I have a gross combined income of approximately

$210,000.00 which includes bonuses and...
My wife and I have a gross combined income of approximately $210,000.00 which includes bonuses and my military retirement. I have 20% of my gross going into my 401K and claim 0 exemptions during the year. My wife claims 1 exemption and contributes 2% to her 401K. We have a mortgage and 2 kids in college. Why is it that we consistently owe taxes at the end of the year, approximately $6K every year and what can we do to mitigate owing at the end of the year?
Show More
Show Less
Ask Your Own Tax Question
Answered in 53 minutes by:
10/3/2009
Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2,439
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
Verified
HICustomerbr />
Thank you for using justanswer. Although you should probably increase your Federal withholdings, that should NEVER be your "first line of defense". Your first line of defense should always be to lower your taxable income, not just give our government more of your money as an interest free loan to them.

You stated you gave 20% of your income to your 401K. That's wonderful. You should ALWAYS pay yourself first. You stated your wife gave 2% of her income to her 401K. One of the best ways to lower your taxable income is to take advantage of all of the pre tax programs your employer offers, such as a 401K. Many employers also offer other pre tax programs, such as pre tax health insurance for instance.

Increasing your wife's 401K contribution from 2% to 20% will make a HUGE dfference in her take home pay. I often tell people to take it up in increments. (Maybe increase it to 5%, then in about 6 months increase it to 7%, etc) This helps prevent "shell shock" from having such a huge take home pay difference, and gives you time to adjust your living/spending habits while still lowering your tax liability.

You mentioned that you had a mortgage. If your home mortgage interest, real estate taxes, state taxes withheld are more than $11,400 (standard deduction for joint filers for 2009), then I'm assuming that you are filing Form 1040 (Schedules A) Itemized deductions. If you are, then make sure that you keep track of any charitable deductions, since those will also help lower your taxable income. Maybe this would be a good year to clean out your closets and donate your clothing/household items, even old tools to places like a church, salvation army, etc.

If you and your wife have ever talked about having vacation home, or looking for a place to retire, this might be a good time to purchase that retirement or vacation home. This is certainly a buyer's market, and you may write off mortgage interest on 2 homes on your Schedule A itmeized deductions, and real estate taxes from ALL property you own.

A 2nd home doesn't have to be a home in the traditional sense either. It can be an RV, even a house boat, as long as it has a separate kitchen and bathroom facilities.

You mentioned that you had 2 children in college. Your income is too high to take advantage of any education credits, but hopefully you are aware that you may claim your daughters as exemptions on your tax rerturn up to age 24 as long as they are full time students. (Full time students for IRS purposes are students who attend an accredited college for any part of 5 months)


Some tax pros will suggest that you purchase a home that you can rent out, as the mortgage interest, real estate taxes, depreciation, etc etc will often cause a paper loss. I don't often suggest this unless this was something you might have been interested in anyway, because there's no guarantee that you will show a loss, although that is the most common scenario, especially in the beginning years.If this is something you might be interested in, you might want to look at property where your daughter's go to college. Having them live in the home might be less expensive if they are currently living in the dorm, but you will have rent at least part of the home to paying renters (and you would have to pro rate the expenses based on square footage rented/vs total square footage since you would not be able to deduct any expenses relating your your children livng there unless they are paying rent at the same rate as the others.) However, you have to deal with capital gains when you sell it.

You should probably also talk to a financial advisor. There are numerous vehicles to invest your money in, such as tax free bonds, etc. Although investing in these type of tax free investments will not improve your immediate tax situation, it will allow those investments to grow tax free for the future.

If you do some or all of these steps AND increase your tax withholdings, I think you will see a difference in your tax liability. Again, your best bet, and the place you will see the most dramatic difference is reducing your taxable income by having your wife increase her 401K contributions, and making sure that both of you are taking advantage of all of the pre tax programs (health insurance, 401K, etc) that your employer offers.

I hope that this helps.
Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2,439
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
Verified
Anne and 87 other Tax Specialists are ready to help you
Ask your own question now
Ask Anne Your Own Question
Anne
Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2,439
2,439 Satisfied Customers
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses

Anne is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,312 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,362 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

14,120 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,652 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
How does applying the standard deduction, or any itemized
how does applying the standard deduction, or any itemized deductions, impact your federal tax bracket? the top end of the 15% tax bracket is $75,900 for married filing jointly and the standard deducti… read more
Carter McBride
Carter McBride
LLM
269 satisfied customers
Does the new (in effect 01-01-2018) standard deduction for
Does the new (in effect 01-01-2018) standard deduction for couples of $24,000. apply to 2017 tax prep? … read more
emc011075
emc011075
Senior Tax Specialist
Bachelor's Degree
16 satisfied customers
Please let me know what is the standard deduction on the
Hi. Please let me know what is the standard deduction on the 1040 form for 2017 for a single person with no dependents. This is for a friend. This is in California. Thank you.… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
My withholding exceeds my tax liability for each of the the
My withholding exceeds my tax liability for each of the the first three quarters of 2017. However, in December 2017 I received a taxable gift of $78,000 from which nothing was withheld. I know this mu… read more
abci168
abci168
Principal
27 satisfied customers
On this new tax bill, if you pay real estate taxes and are
On this new tax bill, if you pay real estate taxes and are limited to deducting 10K would you still get that deduction AND the 24K standard deduction since all other itemized deductions (except mortga… read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
What are the turm capital gains tax on properties that are
what are the long turm capital gains tax on properties that are in germany? … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
14,120 satisfied customers
My brother retired from the federal government at the age of
My brother retired from the federal government at the age of 57 because he had been diagnosed with kidney failure and wen on dyalysis. He worked for a year after his diagnosis, and had to work through… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I'm canadian who want to understand capital gains tax rate.
Hi, i'm canadian who want to understand capital gains tax rate.I have a rental house that i bought at 500K. I sold it after 9 yrs at 1100K. With the money, i bought a new house (will be my primary res… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,808 satisfied customers
What rate of withholding is applicable for a domestic
What rate of withholding is applicable for a domestic partnership with 2 foreign partners upon the selling of a rental property in US. … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Can we claim the mortgage interest for a second home on
Can we claim the mortgage interest for a second home on property that we purchased and have developed a rustic "camp" on? We have an outhouse (bathroom), outdoor kitchen area, and a small building we … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,808 satisfied customers
Form 886-A Deductible Home Mortgage Interest Taxpayer has
Form 886-A Deductible Home Mortgage Interest Taxpayer has $1,000,000 in Grandfathered debt. Line 9 Form 886-A - is this line amount after deducting the garandfathered debt… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I entered my mortgage interest in the section marked
I entered my mortgage interest in the section marked mortgage. … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Figure out how much is my tax liability + my capital gains +
Figure out how much is my tax liability + my capital gains + depreciation recapture tax … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Are you familiar with Capital Gain taxes on rental property?
Are you familiar with Capital Gain taxes on rental property? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Can you write off mortgage interest on a vacation home the
can you write off mortgage interest on a vacation home the home price 54000.00 … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
14,120 satisfied customers
I have a income and my real estate taxes on my home doesn't
I have a income and my real estate taxes on my home doesn't not seem to affect the amount I owe in taxes on the 1040 , what is the reason for this?… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,808 satisfied customers
Regarding the 'capitalize the mortgage interest'. I was a
Regarding the 'capitalize the mortgage interest'. I was a partner in a rehabbing/flipping real estate business. We rehabbed two properties in 2016 and sold them in 2017. According to the first propert… read more
taxmanrog
taxmanrog
Master\u0027s Degree
778 satisfied customers
Can you still deduct mortgage interest and real estate taxes
Can you still deduct mortgage interest and real estate taxes payments? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x